In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Tag: Bailout

Today the Center for American Progress rolled out its proposal that we add “public directors” to the boards of companies that have been bailed out by the government. CAP scholar Emma Coleman Jordan argues that “public directors will provide a corrective to the boards of the financial institutions that helped cause the crisis.”

One has to wonder whether Ms. Jordan has ever heard of Fannie Mae and Freddie Mac. If she had, she might recall that a substantial number of the board members of Fannie and Freddie were so-called “public” members appointed by the President. Perhaps she can ask CAP adjunct scholar and former Fannie Mae executive Ellen Seidman to review the history of those companies for her.

Where’s the evidence that any of those Fannie/Freddie “public” directors, whether they were appointed by Republican or Democrat Presidents, ever once look out for the public interest? In fact all the evidence points to these public directors looking out for the interests of Fannie and Freddie, often lobbying Congress and the Administration on the behalf of these companies.

I suppose CAP would tell us that having the regulators pick the directors instead of the president would protect us from having those positions filled with political hacks. Ms. Jordan argues that “regulators should determine most of the details of the public directorships—after all, they have the most direct experience in trying to regulate private companies that have received public funds.” We tried that route as well. In contrast to Fannie/Freddie, each of the twelve Federal Home Loan Banks had to have a number of its directors appointed by its then regulator, the Federal Housing Finance Board. It was well known within the Beltway that these appointments were more often political hacks than not. For instance one long time director of the Federal Home Loan Bank of Pittsburgh was the son of a senior member of the US House Committee on Finance Services. Once again we’ve gone down this road, we know how this story ends.

If we are truly interested in protecting the taxpayer, we should, first, end the ability of the Federal Reserve to bailout companies, and second, as quickly as possible remove any government involvement in these companies. Having the government appoint board directors only further entangles the government into our financial system; and if Fannie and Freddie are a good guide, actually increases the chances of future bailouts.

Was it just me, or did there seem to be a whole lot of applause during Obama’s Wall Street speech? Remember this was a room full of Wall Street executives. The President even started by thanking the Wall Street execs for their “warm welcome.”

While of course, there was the obligatory slap on the wrist, that “we will not go back to the days of reckless behavior and unchecked excess,” but there was no mention that the bailouts were a thing of the past. Indeed, there is nothing in Obama’s financial plan that would prevent future bailouts, which is why I believe there was such applause. The message to the Goldman’s of the world, was, you better behave, but even if you don’t, you, and your debtholders will be bailed out.

The president also repeatedly called for “clear rules” and “transparency” - but where exactly in his plan is the clear line dividing who will or will not be bailed out? That’s the part Wall Street loves the most; they can all say we’ve “learned the lesson of Lehman: Wall Street firms cannot be allowed to fail.” At least that’s the lesson that Obama, Geithner and Bernanke have taken away. The truth is we’ve been down this road before with Fannie and Freddie. Politicians always called for them to do their part, and that their misdeeds would not be tolerated. Remember all the tough talk after the 2003 and 2004 accounting scandals at Freddie and Fannie? But still they got bailed out, and what new regulations were imposed were weak and ineffective.

As if the applause wasn’t enough, as Charles Gaspario points out, financial stocks rallied after the president’s speech. Clearly the markets don’t see his plan as bad for the financial industry.

It would seem the best investment Goldman has made in recent years was in its employees deciding to become the largest single corporate contributor to the Obama Presidential campaign. That’s an investment that continues to yield massive dividends.

When Treasury Secretary Hank Paul proposed the bailout of Wall Street banks last September, I objected in part because the TARP meant that government connections, not economic merit, would come to determine how capital gets allocated in the economy. That prediction now looks dead on:

As financial firms navigate a life more closely connected to government aid and oversight than ever before, they increasingly turn to Washington, closing a chasm that was previously far greater than the 228 miles separating the nation’s political and financial capitals.

In the year since the investment bank Lehman Brothers collapsed, paralyzing global markets and triggering one of the biggest government forays into the economy in U.S. history, Wall Street has looked south to forge new business strategies, hew to new federal policies and find new talent.

“In the old days, Washington was refereeing from the sideline,” said Mohamed A. el-Erian, chief executive officer of Pimco. “In the new world we’re going toward, not only is Washington refereeing from the field, but it is also in some respects a player as well… . And that changes the dynamics significantly.”

Read the rest of the article; it is truly frightening. We have taken a huge leap toward crony capitalism, to our peril.

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers’ rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

“Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount,” according to the report, which is scheduled to be released Wednesday.

Well, it’s only money. And with the taxpayers facing more than $100 trillion worth of unfunded liabilities, what’s a few more wasted dollars?!

The reaction to President Obama’s planned speech to schoolchildren and the lesson plans sent out by the Dept. of Ed have sparked a firestorm of criticism and accusations about indoctrination, etc.

Many, many people just can’t understand what the big deal is. After all, it’s just a pep-talk about doing well in school and working hard. Sure, there was some language promoting Obama and political leaders. But who cares? It’s just a brief speech by the President after all. Just like Bush the Elder gave in gentler times (which got him a Congressional investigation).

Many are asking the same questions about a number of issues these days. Why the outrage over the deficit? Where were the complaints when Bush the Younger ran it up? Why so exercised about the government health option? Don’t we have Medicare and Medicaid?

Of course Cato scholars, libertarians and many conservatives have criticized these things all along. For some, the new sensitivity, the emotion, is the result of the proverbial straw on a camel’s back, the accumulation of dissatisfaction with various aspects of the government over decades. And what has changed for others is the pace and scope of government expansion at the close of the Bush presidency and the dawn of Obama’s.

The furious reaction to the politicized lesson plan and Obama’s speech to schoolchildren cannot be understood without the context of the bailouts, the stimulus, the debt, GM, the attempt to take over health care.

And now, our kids. And not just the speech and lesson plan, but federal expansion into preschool and early childhood initiatives and home visitations (however voluntary and innocuous-seeming in different times).

They … the government, the meddlers, the nannies … they are coming for our money, our doctors, our guns and our kids. They won’t stop until they control everything.

That’s how it looks to millions of Americans. Fair or not, people are now very sensitive to any actions by the Obama administration.

Just as a lifetime of exposure to an allergen and modest immune reactions can reach some ill-defined tipping point and bloom into full-blown anaphylaxis, many Americans have developed an acute allergy to government intervention and Obama’s grand plans.

In isolation, the reaction to this speech seems wild. Given the context, it’s completely understandable.

The housing boom and bust that occurred earlier in this decade resulted from efforts by Fannie Mae and Freddie Mac — the government sponsored enterprises with implicit backing from taxpayers — to extend mortgage credit to high-risk borrowers. This lending did not impose appropriate conditions on borrower income and assets, and it included loans with minimal down payments. We know how that turned out.

Did U.S. policymakers learn their lessons from this debacle and stop subsidizing mortgage lending to risky borrowers? NO. Instead, the Federal Housing Authority lept into the breach:

The FHA insures private lenders against defaults on certain home mortgages, an inducement to make such loans. Insurance from the New Deal-era agency has enabled lending to buyers who can’t make a big down payment or who want to refinance but have little equity. Most private lenders have sharply curtailed credit to those borrowers.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

And what is the result of this surge in FHA insurance?

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

This is madness. Repeat after me: TANSTAAFL (There ain’t no such thing as a free lunch).

In re-appointing Bernanke to another four year term as Fed chairman, President Obama completes his embrace of bailouts, easy money and deficits as the defining characteristics of his economic agenda.

Bernanke, along with Secretary Geithner (then New York Fed president) were the prime movers behind the bailouts of AIG and Bear Stearns. Rather than “saving capitalism,” these bailouts only spread panic at considerable cost to the taxpayer. As evidenced in his “financial reform” proposal, Obama does not see bailouts as the problem, but instead believes an expanded Fed is the solution to all that is wrong with the financial sector. Bernanke also played a central role as the Fed governor most in favor of easy money in the aftermath of the dot-com bubble – a policy that directly contributed to the housing bubble. And rather than take steps to offset the “global savings glut” forcing down rates, Bernanke used it as a rationale for inaction.

Perhaps worse than Bush and Obama’s rewarding of failure in the private sector via bailouts is the continued rewarding of failure in the public sector. The actors at institutions such as the Federal Reserve bear considerable responsibility for the current state of the economy. Re-appointing Bernanke sends the worst possible message to both the American public and to government in general: not only will failure be tolerated, it will be rewarded.